Did you know some people are buying health insurance with tax-free dollars? If you are self-employed (according to the IRS), you can legally deduct what you pay for health insurance to cover yourself and your family. Here’s how that works.
You can do this using what accountants call an “above the line” deduction taken on Form 1040 when you file tax returns. Simply put, that means you don’t need to itemize your deductions to claim this one.
To further reduce your taxes, you should consider an HSA-qualified plan. Any money you put in the HSA is fully tax deductible. And if you are self employed, you may qualify for a Health Reimbursement Arrangement, which will lower your costs even further.
How the Individual Health Insurance Market Works
Since you’ll be buying your own coverage in the individual market, you’ll be finding lower premiums than are generally available in the group coverage market. Just about anyone can apply for a health insurance policy, but your application could be declined if you need health care for something beyond preventive care.
That’s covered, by the way, under policies now days without any additional out-of-pocket costs. If you use a doctor who has contracted with the insurance company to charge pre-determined rates, you won’t have to meet a deductible or have to pay for part of the fee for a lot of recommended preventive health care. Annual physicals, certain vaccinations, and several screening procedures for major diseases like cancer and cardiovascular disease are now covered.
No More Pre-existing Condition Denials
This is the last year that insurance companies are allowed to refuse to cover adults. Children already have this protection so they cannot be denied coverage even if they have asthma or any other chronic illness.
As of 2014, you won’t have the worry of coverage being denied even if your policy payment lapses and you need to reapply for a new one. If you can afford to keep up with premiums and don’t need to reapply, your premiums are not allowed to be raised solely because you file a large medical bill claim. The monthly premiums do increase annually, though.
Federal Subsidies Available this Fall
If you apply for coverage this fall, issued policies will take effect January 1. Premiums will be going up, but if you earn less than 400 percent of the federal poverty level, you may qualify for a subsidy to help offset the cost. We can check out what policies are available and sign you up for the subsidy if you qualify.
Wiley Long is President of HSA for America, and a passionate advocate for consumer-based solutions that will improve price transparency and lower health insurance and medical costs for people purchasing individual and family health insurance plans.